EUR/USD surges as Trump tariffs fuel US stagflation fears.

EUR/USD soars above 1.1100 as the US Dollar has been hit hard by Trump’s reciprocal tariffs announcement.
US President Trump has announced 20% reciprocal levies on the Eurozone.
EC von der Leyen vows to retaliate if negotiations with Washington fail.

EUR/USD climbs to its highest level since October around 1.1145 in Thursday’s European session and gains more than 2% on the day. The major currency pair strengthens as the US Dollar (USD) takes the bullet for long-term transition in the United States (US) economy. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, nosedives to near 101.30, the lowest level seen in six months.

On Wednesday, US Council of Economic Advisers Chair Stephen Miran agreed that tariffs announced by US President Donald Trump could lead to short-term bumps in the economy but will be favorable for long-term prospects. His comments came after Trump unveiled planned reciprocal tariffs. Trump announced a 10% baseline duty on all imports to the US and additional specific levies on most of its trading allies. Some leaders from targeted nations have threatened to retaliate with countermeasures.

Market participants expect Trump’s tariffs will lead to a global economic slowdown, including in the US. Experts believe that new import duties are higher than expected and sufficient to send the US economy into a recession. Such a scenario paves the way for stagflation, assuming that higher levies will dampen efforts made by the Federal Reserve (Fed) to contain sticky inflationary pressures. This will complicate the Fed’s job of maintaining inflation near the 2% target with full employment.

Going forward, investors will focus on the US Nonfarm Payrolls (NFP) data for March, which will be released on Friday. The official employment data will influence market expectations for the Fed’s monetary policy outlook. On Wednesday, the ADP Employment Change data showed that the private sector added 155K fresh workers in March, significantly higher than the expectations of 105K and the former release of 84K.

In Thursday’s session, investors will pay close attention to the S&P Global and the ISM Services Purchasing Managers Index (PMI) data for March, which will be published during North American trading hours. The S&P Global Services PMI is estimated to align with the preliminary reading of 54.3. The ISM Services PMI is expected to come in lower at 53.0 from February’s reading of 53.5, suggesting that activities in the services sector grew moderately.

Daily digest market movers: EUR/USD rallies despite growing concerns over Eurozone economic outlook

Sheer strength in the EUR/USD pair is also driven by outperformance from the Euro (EUR). The shared currency strengthens even though fears of a potential trade war between the US and the Eurozone have escalated after Trump announced 20% reciprocal tariffs on the European Union (EU).
European Commission (EC) President Ursula von der Leyen stated that the consequences will be “dire for millions of people around the globe”. She warned that the old continent is prepared to retaliate with countermeasures if negotiations with Washington end without a healthy conclusion. Von der Leyen further added that the EC is already finalising the “first package of countermeasures” in response to tariffs on steel and is now preparing for further countermeasures to protect our “businesses and interests”.
Last month, von der Leyen warned of imposing tariffs on up to 26 billion Euros worth of imports from the US as a countermeasure for Trump’s sweeping 25% levies on steel and aluminum imports, which became effective on March 12.
Meanwhile, European Central Bank (ECB) officials have ruled out expectations that tariff-driven inflation could dent hopes of more interest rate cuts. During European trading hours, ECB policymaker and Governor of Bank of Greece Yannis Stournaras said that US tariffs will not be an “obstacle to April rate cut” as the inflation path remains “unchanged”. Stournaras guided that US tariffs will “negatively impact” the Euro area Gross Domestic Product (GDP) growth rate by “0.3%-0.4%” in the first year.